An analysis of the cottonseed pricing structure in Texas

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The general objective of this study was to determine how variations in cottonseed supply factors, demand factors, and the five quality attributes reported under the current grading system (oil, ammonia, moisture, free fatty acids, and foreign matter) affect the price of whole cottonseed. A modified hedonic price model was estimated using the maximum likehhood procedure to accomplish this objective. It was found that cottonseed oil prices, cottonseed meal prices, moisture levels, free fatty acid levels, and foreign matter levels had statistically significant relationships with Texas cottonseed prices over the 1987-1996 marketing years.
Results indicated that as cottonseed oil prices changed by 1 percent, cottonseed prices changed by about 0.3250 percent. Cottonseed prices changed by about 0.3972 percent in response to a 1 percent change in cottonseed meal prices. Further, it was estimated that as moisture, free fatty acid, and foreign matter levels increased by one unit, cottonseed prices decreased by approximately 23 cents per ton, 4.56 dollars per ton, and 91 cents per ton, respectively. Under the current formula pricing system, the marginal implicit prices or market values of moisture, free fatty acids, and foreign matter were calculated to be approximately -10 cents per ton, -40 cents per ton, and -10 cents per ton, respectively. Thus, according to the findings of this study, the current formula pricing system undervalues discounts for cottonseed moisture, free fatty acid, and foreign matter content. This raises concerns about potential problems with the formula pricmg system. There is a need for further research on this topic usmin non-aggregated data.